Using the data of MTC company found on your notes namely:

The accountant of MTC Corporation has estimated the future free cash flow of the business to be as follows:

2019 2020 2021 2022 2023

Amounts in million 4.4 4.6 4.9 5.0 5.4

After 2023, the free cash flows will grow by 5% in perpetuity. The business has a cost of capital of 10percent. Furthermore, MTC Company recently had a professional valuer stablish the current resale value of their assets.

What is the company's market value per share using free cash flow model?

Round off final answers to two (2) decimal places. Exclude currency sign.

Question 1 30 pts Using the data of MTC company found on your notes namely: The accountant of MTC Corporation has estimated the future free cash flow of the business to be as follows: 2020 2021 2019 2023 2022 4.4 4.6 4.9 5.0 Amounts in million 5.4 After 2023, the free cash flows will grow by 5% in perpetuity. The business has a cost of capital of 10percent. Furthermore, MTC Company recently had a professional valuer stablish the current resale value of their assets. What is the company's market value per share using free cash flow model? Round off final answers to two (2) decimal places. Exclude currency sign. MERGER FUNDAMENTALS (The Valuation of Shares) Introduction An important aspect of any merger or takeover negotiation is the value to be placed on the shares of the businesses to be merged or acquired. In this section we will explore the various methods that can be used to derive an appropriate share value for a business. In theory, the value of share can be defined either in terms of the current value of the assets held on the future cash flows generated from those assets. In a world of perfect information and perfect certainty, share valuation would pose few problems. However, in the real world, measurement and forecasting problems conspire to make the valuation process difficult. Various valuation methods have been developed over the years to deal with these problems, but they can often produce quite different values. The methods employed to valve a share can be divided into three broad categories as follows: 1. Methods based on the value of the business' assets. 2. Methods that use stock market information. 3. Methods that are based on future cash flows. We will now examine the above-mentioned methods by using the following financial data of MTC Company MIC Company Income Statement for the year ending December 31, 2018 Sales 18.700.000 Costs 12.300.000 EBIT 6,400,000 Interest 1.600.000 EBT 4.800.000 Tax 1.200.000 Net Income 3.600.000 Dividends declared 1.000.000 Earnings available for Common shareholders 2.600.000 2,600,000 2.800.000 400.000 5.800.000 MIC Corporation Balance Sheet As of December 31, 2018 CURRENT ASSETS Cash in bank Stocks held for trading Accounts Receivable Total Current Assets NON-CURRENT ASSETS Fixed Assets Less: Accumulated Depreciation Property. Plant and Equipment Less: Accumulated Depreciation Total Non-current Assets TOTAL ASSETS CURRENT LIABILITIES Accounts Payable Dividends Payable for the year Tax Payable Total Current Liabilities NON-CURRENT LIABILITIES Long Term Loan TOTAL LIABILITIES 4.600.000 600,000 9.500.000 3.600.000 2.900.000 15.700,000 4,300,000 1.000.000 L200,000 6,500,000 3.600.000 10.100,000 EQUITY Common Stocks (P1.00 par value per share) Retained Earnings TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 2,000,000 3.600.000 5.600.000 15.700.000 Additional Information: The accountant of MTC Corporation has estimated the future free cash flow of the business to be as follows: 2019 2020 2021 2022 2023 Amounts in million 4.4 4.6 4.9 5.0 5.4 After 2023, the free cash flows will grow by 5% in perpetuity. The business has a cost of capital of 10percent. Furthermore, MTC Company recently had a professional valuer stablish the current resale value of their assets. The current resale value of each asset was as follows: Fixed assets - 18,200,000 Property. Plant and Equipment -4.200.000 Stocks held for trading - 3,400,000 MTC has a current gross dividend yield of 5 percent and a price to earnings ratio of 11 times. The financial director believes that the replacement costs are one million higher than the resale values for both fixed assets and PPE and 500.000 higher than the resale value of the stocks held for trading. The replacement costs of the remaining assets are considered to be in line with their book values. In addition, the financial director believes the goodwill of the business has a replacement value of 10.000.000. The balance sheet values of the liabilities of the company also reflect their current market values. ASSET-BASED VALUATION METHODS These methods attempt to value a share by reference to the value of the assets held by the business. 1. Net book value method = Totat assets at balance sheet values-total liabilities 2. Liquidation value method - Total assets at net reallrable values - total liabilities at current market values number of common shares outstanding 3. Replacement method = Total assets at replacement costs-total liabilities at current market values number of common shares outstanding number of common shares outstanding Using the data of MIC provided, the price per share of MIC using the three methods are as follows: 1. Net book value method = (0,0,000 + 5,200,000) =(0,500,000 $3,400,0) = P2.80 per share 2. Liquidation value method = (18200,000+4,200,000+3,400,000+400,000+ 2.500.000)-(6,500,000+3,600,000) = P9.35 2,000,000 per share 3. Replacement cost method = (19.200.000+5,200,000+ 3,000,000+600.000+2,000,000+50,000,000) (0.500,000+3,000,000) 2,000,000 = P15.60 per share Professor's notes: number of common shares outstanding is 2,000,000 shares because based from the balance sheet data, the total amount of common stocks is P2,000,000 and it states that the par value is P1.00 per share which means that the company has a total of 2,000,000 shares outstanding (P2.000.000 /P1.00 per share = 2.000.000shares) For the net book value method. 9.900.000 represents the total non-current assets and 5,800,000 represents the total current assets. Furthermore, 6.500.000 represents the total current liabilities (at current market value) and 3.600.000 represents the total current market value of non- current liabilities. For liquidation value method, the total assets are comprised of: 18,200,000 (current resale value of the fixed assets) : 4.200,000fcurrent resale value of PPEJ: 3,400,000 (current resale value of stocks held for trading): 400.000 accounts receivable); and 2.600,000 (cash in bank), For liquidation value method, the total liabilities are still the same with that of the net book value method because again, the stated liabilities are already at its current market value. For replacement cost method, based from the additional information, the replacement cost for fixed assets and PPE is P1.000.000 higher than the current resale value hence, we have 19.200,000 for fixed assets (18,200,000 as the resale value + 1,000,000) and 5.200.000 for